PepsiCo's (PEP) "modest" fiscal Q2 earnings beat was driven by below-the-line items rather than stronger organic sales or margins, but UBS Securities said the company remains well positioned relative to peers despite a slower long-term growth outlook.

The investment firm said in a Thursday note that organic sales, gross margin and operating profit margin all missed consensus expectations. Management reiterated its 2026 guidance but indicated that, given ongoing uncertainties, earnings per share growth is more likely to come in at the low end of the target range.

While the guidance itself was not surprising, the analysts believe investors are skeptical of the H2 outlook. Earnings per share are expected to be heavily weighted toward Q4, with Q3 EPS roughly flat, while sales are still expected to improve despite continued weakness in US trends. The analysts added that they believe this skepticism is a key reason the shares were down on the day.

Looking ahead, UBS expects trends in North America to improve only modestly. The brokerage now believes long-term organic sales growth of 2% to 4% is more realistic than its previous 4% to 6% expectation.

While the lower long-term growth outlook is disappointing, Pepsi's expected 2.4% organic sales growth could still compare favorably with several multinational peers, according to the research note.

UBS has a buy rating and lowered its price target on Pepsi to $159 from $172.

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